The Optical World Corporation, a manufacturerof peripheral vision storage systems, needs $10 million to market its new robotics-based vision systems.The firm is considering two financing options: common stock and bonds. If the firm decides to raise thecapital through issuing common stock, the flotationcosts will be 6%, and the share price will be $25. Ifthe firm decides to use debt financing, it can sell a10-year, 12% bond with a par value of $1,000. Thebond flotation costs will be 1.9%.(a) For equity financing, determine the flotationcosts and the number of shares to be sold to net$10 million.(b) For debt financing, determine the flotation costsand the number of $1,000 par value bonds tobe sold to net $10 million. What is the requiredannual interest payment?
The Optical World Corporation, a manufacturer
of peripheral vision storage systems, needs $10 million to market its new robotics-based vision systems.
The firm is considering two financing options: common stock and bonds. If the firm decides to raise the
capital through issuing common stock, the flotation
costs will be 6%, and the share price will be $25. If
the firm decides to use debt financing, it can sell a
10-year, 12% bond with a par value of $1,000. The
bond flotation costs will be 1.9%.
(a) For equity financing, determine the flotation
costs and the number of shares to be sold to net
$10 million.
(b) For debt financing, determine the flotation costs
and the number of $1,000 par value bonds to
be sold to net $10 million. What is the required
annual interest payment?
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